Liability, Defenses, and Discharge

Liability

There are two kinds of liability associated with negotiable instruments:

§ Signature liability.

§ Warranty Liability.

Signature Liability

Relates to signatures on instruments.

Signers of negotiable instruments are potentially liable for amount stated on instrument.

§ Primary Liability: Makers/Acceptors.

§ Secondary Liability: Drawers/Indorsers.

Primary versus Secondary Liability

Makers.

§ Promises to pay the note.

§ Obligated to pay terms of instrument at time of signing.

Acceptors.

§ Drawee promises to pay an instrument when presented for payment.

Secondary Liability

Proper Presentment.

§ Must be timely (checks w/in 30 days).

Dishonor.

Case 26.1:  Messing v. Bank of America (2002).

Proper Notice.

§ Manner of Notice in any Reasonable manner.

§ Notice to Indorsers.